TEXT-S&P revises FIATC outlookl

-- On Oct. 10, 2012, we downgraded the Kingdom of Spain to 'BBB-/A-3' from 'BBB+/A-2'. The outlook on Spain remains negative.

-- Under our criteria, we generally cap the ratings on domestic insurers at the level of the sovereign local currency rating.

-- As a result, we are revising the outlook on FIATC to negative from stable and affirming the 'BBB-' rating.

-- The negative outlook reflects that on Spain.

Rating Action On Oct. 12, 2012, Standard & Poor's Ratings Services revised the outlook on FIATC, Mutua de Seguros y Reaseguros a Prima Fija y Sociedades Filiales (FIATC) to negative from stable. At the same time, we affirmed the 'BBB-' long-term counterparty credit and insurer financial strength ratings on FIATC.

Rationale

The outlook revision follows our lowering of the long- and short-term ratings on the Kingdom of Spain (BBB-/Negative/A-3) on Oct. 10, 2012 (see "Spain Ratings Lowered To 'BBB-/A-3' On Mounting Economic And Political Risks; Outlook Negative," published on RatingsDirect on the Global Credit Portal).

The ratings on FIATC are at the same level as the local currency sovereign rating and are constrained under our insurer country risk criteria (see "Criteria Update: Factoring Country Risk Into Insurer Financial Strength Ratings," published on Feb. 11, 2003). Our criteria use the local currency sovereign rating as a proxy for country risk. The local currency sovereign rating generally limits the ratings on domestic insurers, either because their assets include material amounts of domestic sovereign debt, domestic bank debt, or domestic bank deposits, or because they have a largely domestic customer base.

The ratings on FIATC reflect our view of its good capitalization, good operating performance, and its strong franchise in health care and retirement services in the Spanish region of Catalonia, where it is the leading mutual insurer. We consider these positive factors to be offset by the company's lack of national scale and relatively small size, the deteriorating credit quality of its investment portfolio, its high reliance of capital adequacy on unrealized gains on properties, and the difficult economic and financial climate in Spain.

Outlook

The negative outlook reflects that on Spain. We could lower the ratings on FIATC if we were to lower the ratings on Spain or if there were a significant weakening in FIATC's business risk and financial risk profile. This could occur if FIATC were to undertake a large acquisition, or if there were a significant worsening of the quality of its assets.

Based on current information, we consider an upgrade to be unlikely.

Related Criteria And Research All articles listed below are available on RatingsDirect on the Global Credit Portal.